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Counterfeiting and Piracy in The European Union PDF
Counterfeiting and Piracy in The European Union PDF
June 2017
www.euipo.europa.eu
FOREWORD
2017 SITUATION REPORT ON COUNTERFEITING AND PIRACY IN THE EUROPEAN UNION
This situation report prepared by the EUIPO and Europol once again puts the spotlight on the
importance of tackling the international criminals who are among the principle beneficiaries of
IPR infringements in the European Union.
It builds upon the previous 2015 report, also jointly developed, by tracking the evolution of
counterfeiting and piracy, updating the key conclusions and offering new insights into some of
the emerging trends.
IP crime affecting the European Union continues to represent a cause for concern. Criminal
activity in this area not only causes potential harm to the health and safety of EU citizens, but
also to the environment. It also affects legitimate economies, contributing to reduced revenues
for the affected businesses, decreased sales volume and job losses.
The present study confirms that IPR infringements are an important source of income for
organised criminal groups. These groups are also often engaged in other crimes, such as drug
trafficking, excise fraud, human trafficking or money laundering. Their activities are increasingly
facilitated by the use of corruption and document fraud.
Online marketplaces, as highlighted in SOCTA 2017, have increasingly become key distribution
channels for counterfeit goods, with criminals attempting to copy the notable success of legal
online business models.
Other threats are emerging however, and amongst potential challenges, this report explores
the expanding use of rail transport between China and the EU, and how IPR infringers may be
exploiting this.
In the digital world, the online dissemination of protected content has been identified as a
particular issue, with illegal television broadcasts and digital piracy posing a further challenge
for enforcement authorities.
The current report continues the efforts undertaken by both EU agencies to develop a clearer
picture of the extent of the problem of counterfeiting and piracy, working with leading partners.
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used to sell counterfeit merchandise, to target pirated TV decoders, and to shut down illegal
operations using the ‘bitcoin’ digital currency.
This report confirms that counterfeiting and piracy in the EU is a continuing challenge, with
organised criminal groups often ‘pulling the strings’ and benefiting financially.
It demonstrates that the need for ongoing, enhanced cooperation and education amongst
stakeholders and intermediaries is of the utmost importance, to ensure that the fight against
such criminality and its effects becomes ever more cohesive and well informed.
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2017 Situation Report on Counterfeiting and Piracy in the European Union
EXECUTIVE SUMMARY
2017 SITUATION REPORT ON COUNTERFEITING AND PIRACY IN THE EUROPEAN UNION
This report, drawn up in partnership between Europol and the EUIPO, is intended to update
policymakers, practitioners, businesses and the general public on the current counterfeiting
and piracy landscape in the European Union (EU).
It explores Intellectual Property Rights (IPR) and their value, key product sectors, notable trade
routes and countries of provenance for counterfeit products. It also outlines and examines
the threat of piracy and other online infringements, and demonstrates how IPR and their
protection are foundation stones of the EU economy and society.
The report analyses how organised criminal groups (OCGs) are involved in IPR crime and uses a
number of case studies to highlight the dangers posed by their activities. It goes on to examine
some of the challenges faced when tackling IPR crimes, and includes a review of a series of
initiatives that are in place to combat these crimes.
A number of future outlooks are set out and investigated, including some emerging threats in
the world of IPR protection.
The value and stability that IPR-intensive industries lend to society is reflected in the finding
that such enterprises remained particularly resilient during and immediately after the global
economic crisis, when many other sectors struggled. For the 2011-2013 period, IPR-intensive
industries contributed 86 % of imports and 93 % of exports to EU external trade, and 42 % to
GDP1.
IPR crimes, which were calculated to be worth up to USD 461 billion annually worldwide2, now
taint nearly all types of product and geographical areas. The impact of such criminality leads
to a series of hidden knock-on effects on citizens, businesses and governments, and limits the
opportunity for legitimate IPR-intensive businesses to reinvest in research, development and
employment, which constitutes a serious threat to future growth.
For certain product types, some Member States (MS) seize a lower proportion of counterfeits
by value than their ratio of overall legitimate imports may indicate. This suggests that
authorities fighting IPR crime at the external borders in some regions may benefit from risk
1 - European Patent Office and the European Union Intellectual Property Office, Intellectual property rights intensive industries and
economic performance in the European Union, 2016, p. 6. Available at: https://euipo.europa.eu/tunnel-web/secure/webdav/guest/
document_library/observatory/documents/IPContributionStudy/performance_in_the_European_Union/performance_in_the_
European_Union_full.pdf.
2 - OECD/EUIPO (2016), Trade in counterfeit and pirated goods mapping the economic impact, 2016, p. 11. Available at: http://www.oecd.
org/gov/risk/trade-in-counterfeit-and-pirated-goods-9789264252653-en.htm.
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assessments of a given product group in order to target illegal imports more effectively. The
work of customs authorities to detain IPR-infringing goods at the external borders continues
to be very important, even though they are only able to stop a relatively low proportion of the
total counterfeit imports arriving in the EU annually.
China remains the key country of provenance for counterfeit goods, and Hong Kong acts as a
transit point for goods originally manufactured in China, but other countries also have specific
trading characteristics. For instance, Turkey has been linked with Bulgaria and Belgium through
trade in counterfeit labels, tags and stickers, which facilitates internal manufacture.
Free trade zones (FTZ) continue to be associated with a number of IPR crimes, and harmonised
enforcement standards are still required in certain geographical areas.
EU-based criminals rely predominantly on manufacturers based abroad, but then organise
importation, transportation, storage and distribution of the counterfeit goods within the EU.
However, this report demonstrates how some are also active manufacturers within the EU.
Such internal counterfeit manufacture is facilitated by the use of fake labels and packaging
imported from outside the EU and is often orchestrated by OCGs; there are indications that
such criminality is on the rise.
Counterfeit goods are increasingly distributed via online marketplaces. Products sold on the
internet are usually distributed in small parcels via postal and express freight services, often
directly to customers, and the growing role of technologies in IPR crime has been noted.
OCGs linked to IPR crime are often poly-criminal, and are also engaged in other crimes, such as
drug trafficking, excise fraud, human trafficking and money laundering. Document fraud and
corruption continue to greatly facilitate criminal activities in this area.
In the digital world, the online dissemination of protected content has been identified as
a particular issue. Illegal television broadcasts pose a further challenge for enforcement
authorities and fraud also continues to be rife and closely connected to acts of digital piracy.
This report highlights and defines how those at the forefront of fighting IPR crime still operate
under a number of constraints and face specific challenges, such as the need to coordinate
cross-border investigations and tackle new technologies that criminals are using to hide their
locations and activities.
Low penalties render IPR crime attractive to criminals and, with the prospect of punishing a
defendant with an extremely low penalty, pursuing such cases in the first place may not appeal
greatly to certain authorities in some MS.
Terrorism, cybercrime, migrant smuggling, drug trafficking, and other areas of criminal activity
have all moved centre stage in the global law enforcement environment and IPR crimes have
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2017 Situation Report on Counterfeiting and Piracy in the European Union
become less of a priority. This update reveals how IPR crime is still one of the most lucrative
criminal enterprises however, and it continues to be closely linked to other criminal activities.
Nevertheless, new threats in the IPR crime landscape are emerging and this report sets
out specific concerns regarding the increasing use of rail transport as a method of cargo
conveyance between China and the EU, and how IPR infringers may be exploiting this in a
hitherto unquantified manner. Digitalisation of trading and transport systems is expected to
bring new opportunities for criminals.
In all aspects of IPR crime enforcement, there is an identified and ongoing need for enhanced
cooperation and education amongst all stakeholders and intermediaries to ensure that the
fight against such criminality and its effects becomes more cohesive and well informed.
Finally, IPR crime and the criminals associated with it are fluid in nature and many of the
threats and situations detailed in this report are developing on a daily basis. The overarching
conclusion however, is that in all areas of IPR crime, complacency or acceptance at any level
would be ill-advised.
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INTRODUCTION
2017 SITUATION REPORT ON COUNTERFEITING AND PIRACY IN THE EUROPEAN UNION
This report builds on the observations of the 2015 Situation Report on Counterfeiting in the
European Union, by revisiting a number of the original key conclusions and assessing their
evolution and current impact on the 2017 EU IPR-crime enforcement landscape. The aim is to
produce an up-to-date assessment of the threats identified in 2015, as well as to offer insight
into some of the emerging counterfeiting and piracy trends that have developed since the
publication of the original study. Furthermore, the report addresses a series of product groups
and the phenomenon of piracy, subjects that were not covered in the first study, but are now
considered to be evolving and therefore, appropriate issues in the world of IPR enforcement.
This update should facilitate and support the activities of national authorities and EU institutions
related to IPR enforcement. It is intended to improve understanding of the current scope
and impact of IPR infringements on the EU and to form a basis for decision-making and the
exchange of information on IPR infringements between relevant bodies and institutions.
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2017 Situation Report on Counterfeiting and Piracy in the European Union
METHODOLOGY
2017 SITUATION REPORT ON COUNTERFEITING AND PIRACY IN THE EUROPEAN UNION
The methodology used was to conduct an extensive literary review of relevant industry reports,
intelligence updates and of renewed datasets that have become available since the original
2015 Situation Report on Counterfeiting in the European Union, and thereby to offer relevant
insights into any evolution or developments that may have had an impact on the situation as
previously reported.
The document draws on a number of further sources, such as the European Commission
Directorate-General for Taxation and Customs Union (DG TAXUD) external border seizures
database, Europol’s SOCTA 20173, and publications and experiences from beyond the EU. In
addition, the findings of a discussion held in 2016 by the European Observatory on Infringements
of Intellectual Property Rights (Observatory) amongst leading EU judges on sentencing practices
were another source of information, to ascertain the attitudes and opinions of those directly
affected by product counterfeiting and piracy, either at enforcement level or as victims. Data
was also collected during the Europol, EUIPO and Eurojust joint knowledge-building seminars
that have taken place since the publication of the original study.
Illustrative case studies have been used to contextualise the tangible nature of the topic under
scrutiny where possible, providing deeper insight into the challenges faced by those at the
forefront of protecting IPR, either through direct enforcement or policymaking.
3 - SOCTA 2017: EU Serious and organised crime threat assessment. Available at:
http://bookshop.europa.eu/is-bin/INTERSHOP.enfinity/WFS/EU-Bookshop-Site/en_GB/-/EUR/ViewPublication-
Start?PublicationKey=QL3013253.
For the 2011-2013 period, and despite the slow overall recovery from the economic crisis, IPR-
intensive industries nevertheless remained relatively constant in terms of their contribution to total
external trade (86 % of imports and 93 % of exports) and to GDP (42 %)4, compelling testimony to
the value that IPR-intensive industries continue to add to the EU economy and society.
This level of contribution that IPR-intensive industries make, combined with the relatively low
penalties associated with IPR crime in some countries, has led to counterfeiting and allied
infringements becoming global industries in their own right. Such infringements are now
estimated to touch most brands and product types, both within the EU and beyond.
From low-level personal imports (often the result of internet commerce) to the vast quantities
of illegal products traded by organised international networks, counterfeit and IPR-infringing
goods had an overall impact on EU imports to the tune of up to 5 % in 2013, amounting
to approximately EUR 85 billion. IPR-infringing products now originate from virtually all
geographical areas and economies globally, constituting up to 2.5 % of all global trade, worth
up to USD 461 billion in 20135.
Apart from the direct economic impact that IPR infringements have had on the EU, such as
reduced revenues for the affected businesses, decreased sales volumes and lost jobs, there are a
number of associated consequences and ramifications that are less obvious. IPR infringements
affect not only EU citizens directly, but also businesses and, ultimately, governments.
One significant implication of revenue losses for IPR-intensive industries is the impact
on financial resources that could have been reinvested in research and development.
Counterfeiters tend to copy commercially successful products, with which legitimate industries
generate the largest share of their profits and investment capacity. This issue has been raised
by the pharmaceutical industry in particular, but the vast majority of IPR-intensive businesses
are to some extent research focused, due to the innovative nature of the goods with which
they are associated. A cut in research funding therefore, adversely affects future growth
4 - European Patent Office and the European Union Intellectual Property Office, Intellectual property rights intensive industries and
economic performance in the European Union, 2016, p. 6. Available at: https://euipo.europa.eu/tunnel-web/secure/webdav/guest/
document_library/observatory/documents/IPContributionStudy/performance_in_the_European_Union/performance_in_the_
European_Union_full.pdf.
5 - OECD/EUIPO (2016), Trade in counterfeit and pirated goods mapping the economic impact, 2016, p. 11. Available at: http://www.oecd.
org/gov/risk/trade-in-counterfeit-and-pirated-goods-9789264252653-en.htm.
opportunities, not only because there is less direct financing, but also because of the lost jobs
and government revenues.
The financial implications of IPR crime aside, counterfeits almost always represent some form
of risk to consumer welfare, because there are invariably scant quality controls or certification
protocols in place during manufacture. This affects the tobacco, food or pharmaceutical
industries, but also has less obvious consequences in the form of the health dangers associated
with substandard (flammable) clothing, dangerous toys, inferior sports shoes or ineffective
sunglasses, all of which, if used in good faith, threaten end users with potentially serious and
ongoing health risks. IPR crime also affects the environment. Counterfeit pesticides often
contain toxic substances that may contaminate soil, water and food.
Defence at the borders is still considered far more effective than detaining items once they are
in circulation6.
In the 2014-2015 period, despite a drop in caseload (Chart 1), the overall number of counterfeit
products detained at the EU external borders increased (Chart 2)7. This indicates the interception
of higher unit numbers per case year by year, and is an indication that IPR infringers continue
to ship large volume consignments, usually as marine container transport.
Despite evidence of the ongoing use of large-scale cargo shipments by IPR infringers, Chart 3
shows how, since 2012, the majority of external border seizures have been recorded as postal
traffic. Such a method of conveyance does not usually lend itself to large-scale shipments in
terms of units8.
The simplified procedure for small packages afforded by Regulation (EU) No 608/20139 may
allow for many EU customs procedures to become less onerous and therefore, more numerous.
Counterfeited and IPR-infringing goods had an impact on overall EU imports to the tune of
up to 5 % in 2013, amounting to approximately EUR 85 billion. Applying this 5 % ratio to the
2015 legitimate import statistics10 and comparing this with the 2015 seizure statistics11 reveals
6 - Alfadhel, L., ‘TRIPS and the Rise of Counterfeiting: a comparative examination of trademark protection and border measures in
the European Union and the Gulf Cooperation Council’, Trade, Law and Development, Vol. 7, No 2, National Law University, Jodhpur,
2015, p. 6. Available at: http://www.tradelawdevelopment.com/index.php/tld/article/viewFile/7%282%29%20TL%26D%20388%20
%282015%29/262
7 - European Commission, Directorate-General for Taxation and Customs Union, Report on EU customs enforcement of intellectual
property rights: results at the EU border 2015, Publications Office of the European Union, Luxembourg, 2015. Available at: https://
ec.europa.eu/taxation_customs/sites/taxation/files/2016_ipr_statistics.pdf.
8 - With the possible exception of tobacco, labels/packaging and pharmaceuticals.
9 - Regulation (EU) No 608/2013 of the European Parliament and of the Council of 12 June 2013, OJ L 181, 29.6.2013, pp. 15-34
Available at: http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32013R0608&from=EN
10 - Available at: http://ec.europa.eu/eurostat/tgm/refreshTableAction.do?tab=table&plugin=1&pcode=tet00018&language=en and
http://ec.europa.eu/eurostat/statistics-explained/index.php/International_trade_in_goods.
11 - European Commission, Directorate-General for Taxation and Customs Union, Report on EU customs enforcement of intellectual
property rights: results at the EU border 2015, Publications Office of the European Union, Luxembourg, 2015, p. 7. Available at:
https://ec.europa.eu/taxation_customs/sites/taxation/files/2016_ipr_statistics.pdf.
Postal consignments constituted 70 % of cases in 2015 but only accounted for 2 % of the
number of detained articles, indicating that bulk cargo remains the main threat in terms of the
volumes and values of counterfeit goods that have an impact on the EU economy.
98.000
96.000
94.000
92.000
90.000
88.000
86.000
84.000
82.000
2013 2014 2015
32.000.000
30.000.000
28.000.000
26.000.000
24.000.000
22.000.000
20.000.000
2013 2014 2015
80.000
70.000 Air
60.000
Express Courier
50.000
Post
40.000
30.000 rail
20.000 Road
10.000
Sea
0
2012 2013 2014 2015
The range of counterfeit products recovered in the EU remains broad and includes nearly
all types of goods and also, increasingly, everyday products, such as cosmetics, shampoos,
toothpaste, toys, medicines, food and beverages, and household products. Various technical
products, such as bearings, electronic chips, and mechanical parts are also often counterfeited.
Counterfeit goods sold in the EU tend to be of lower value and increasingly include spare parts
or other elements used in combination with genuine products. This development is reflected
in the increasing seizures of low-value goods, such as replacement parts for mobile phones,
including replacement screens or batteries. These spare parts are easy to ship because of their
small size and can be assembled into a final product in the destination country.
Regarding product types, the top categories of detained articles at the external borders in 2015
were cigarettes, which accounted for 27 % of the overall amount of detained articles, followed
by other goods (10 %), toys (9 %), labels, tags and stickers (8 %) and foodstuffs (7 %). These
percentages are by unit volume however, and by caseload the leading results were sports
shoes (17 %), bags/watches/purses (15 %) and clothing (14 %). By value, watches prevailed
(24 %), followed by wallets/purses (9 %) and clothing (7 %)12.
Although not entirely harmonised, it has been possible to compare datasets showing legitimate
product import ratios by value, to the ratios of IPR-infringing seizures reported by each MS at
the external borders over a series of product categories and a comparable timeframe.
With a number of product groups, MS that reported a high proportion of IPR-infringing seizures
compared with their legitimate share of the market often neighboured MS that reported
incongruously low seizures compared with genuine imports. One explanation for this is that
the MS reporting higher than expected seizure rates at the external borders may, in some
cases, be established points of entry for illegal products that would subsequently have been
distributed in neighbouring states, if they had not been intercepted at the point of entry.
12 - European Commission, Directorate-General for Taxation and Customs Union, Report on EU customs enforcement of intellectual
property rights: results at the EU border 2015, Publications Office of the European Union, Luxembourg, 2015, pp. 16-18.
A full analysis and additional insight into what effect counterfeiting in each of these sectors has
on wider EU society can be found in Appendix A.
The issue of labels, packaging and products being sent to the EU separately is a growing
concern. Such items combined constituted one of the largest product types seized at the
external borders. In 2015 they ranked second overall by units seized (behind finished, packaged
tobacco)13. A sizeable number of the counterfeit labels, tags and stickers intercepted at the
external borders pertained to batteries manufactured by two of the world’s leading electronics
giants, leading to the suspicion that they may have been counterfeit stickers used to disguise
lower-end batteries as genuine branded articles and that the counterfeits would be passed off
as genuine at a significant profit.
13 - European Commission, Directorate-General for Taxation and Customs Union, Report on EU customs enforcement of intellectual
property rights: results at the EU border 2015, Publications Office of the European Union, Luxembourg, 2016, p. 29. Available at:
http://ec.europa.eu/taxation_customs/sites/taxation/files/2016_ipr_statistics.pdf.
However, most seizures of packaging materials were of items associated with tobacco products
(74 % of units recovered).
The majority of this packaging was stopped at the United Kingdom, the Netherlands or French
borders and was recorded as having originated predominantly from China and Hong Kong. Large
numbers of branded counterfeit tobacco pouches are manufactured in China and Hong Kong,
but possibly not the counterfeit tobacco itself. This could be shipped separately as an unbranded
product, manifested as a non-IPR-infringing import, and therefore not be liable to seizure.
14 - Associated Press, ‘In Italy, seized knock-off shoes go to help new migrants’, 12 May 2015. Available at: http://www.dailymail.co.uk/
wires/ap/article-3078188/In-Italy-seized-knock-shoes-help-new-migrants.html.
China
China has long been recognised as the engine of the global counterfeiting industry. Counterfeit
goods are estimated to amount to approximately 12.5 % of China’s total exports and over
1.5 % of its GDP. This results in estimations that 72 % of counterfeit goods currently in circulation
in three of the world’s largest markets for such products, namely the EU, Japan and the USA,
have been exported from China15.
Altogether, 49 % of all IPR-infringing seizures made in the United States in 2015 emanated
directly from China16. Simultaneously, Japan reported 91 % of all cases being of Chinese
provenance17. EU statistics show Chinese exports as amounting to 56 % of all recoveries by
caseload18. In combination, Chinese counterfeit exports recovered in the EU, Japan and the
United States were valued at EUR 1 083 823 626 in 2015 alone, contributing significantly to
the estimation that up to 2.5 % of all global trade and up to 5 % of EU imports concern IPR-
infringing products. The long-distance cargo train connections between China and the EU may
also offer a new advantageous route for transportation of counterfeits.
China is not just responsible for direct exports however, and a number of transit countries are
also known to contribute significant numbers of Chinese-made counterfeits to the overall picture.
Hong Kong
Seizures from Hong Kong contributed only 4.2 % to the Japanese caseload in 2015, but a much
larger 34 % to US figures and 26 % to those of the EU, indicating that the territory plays a
15 - US Chamber of Commerce, Measuring the magnitude of global counterfeiting: creation of a contemporary global measure of physical
counterfeiting, GIPC, Washington DC, 2016, p. 3. Available at: http://www.theglobalipcenter.com/wp-content/themes/gipc/map-
index/assets/pdf/2016/GlobalCounterfeiting_Report.pdf.
16 - US Customs and Border Protection Office of Trade, Homeland Security, Intellectual Property Rights: fiscal year 2015 seizure statistics,
CBP, Washington, 2016, p. 13. Available at: https://www.cbp.gov/sites/default/files/assets/documents/2017-Jan/2015%20IPR%20
Annual%20Statistics.pdf.
17 - Japan Customs, 2015 Seizure statistics of IPR border enforcement, Customs and Tariff Bureau, Tokyo, 2016, p. 5. Available at: http://
www.customs.go.jp/mizugiwa/chiteki/pages/statistics/statistics2015.pdf.
18 - European Commission, Directorate-General for Taxation and Customs Union, Report on EU customs enforcement of intellectual
property rights: results at the EU border 2015, Publications Office of the European Union, Luxembourg, 2016. Available at: http://
ec.europa.eu/taxation_customs/sites/taxation/files/2016_ipr_statistics.pdf.
A second element in Hong Kong’s status as a global logistics centre is its airport, which was the
world’s busiest for air cargo throughput, handling 4.38 million tonnes. In all, 66.3 % of inward
traffic emanated from Asian territories and 15.4 % of outward movements were destined for
Europe, suggesting that a degree of this statistic corresponded to Chinese exports transiting
Hong Kong airport and in the process, acquiring Hong Kong provenance20.
The country’s air communications continue to play a significant role in the illegal supply chain for
IPR-infringing goods destined for the EU. Altogether, 33 % of units recovered at the EU external
borders in 2015 of Hong Kong provenance arrived by air freight. Generally, express courier traffic,
international post and air freight in combination constitute the most commonly used transport
methods. The seized consignment arriving in the EU from Hong Kong consisted of 10 items or
less. This is strongly indicative of internet trade and may be the result of Hong Kong based entities
fulfilling low-volume electronic orders made in Europe, either as a subsidiary of large-scale Chinese
counterfeit manufacturers or independently, based on bulk imports from mainland China.
Finally, Hong Kong shadow companies are increasingly being used to engage in counterfeiting
and other infringing activities in China21. These companies do not generally conduct business
in Hong Kong, but carry out counterfeiting and other illegal activities in mainland China under
the Hong Kong company name, with the intention of misleading consumers and avoiding legal
liabilities in mainland China. A new trend has been identified in China, whereby online vendors
increasingly use shadow companies to set up e-shops, thereby misleading consumers as to
their whereabouts. Counterfeit goods manufactured and sold by such companies in China
are deliberately shipped through Hong Kong, in order to maintain the pretence of their having
originated in the territory.
Overall in 2015, China and Hong Kong together were the provenance of 86 % of global
counterfeiting and USD 396.5 billion worth of counterfeit goods and in combination, they form
the largest ongoing threat to global IPR integrity22.
19 - Hong Kong Yearbook 2007, p. 249. Available at: http://www.yearbook.gov.hk/2007/en/pdf/E13.pdf. Accessed 26 March 2017.
20 - Hong Kong International Airport, Monthly Digest of Statistics, January, 2016, Hong Kong, Trade Statistics Processing Section, Census
and Statistics Department, p. 5. Available at: http://www.statistics.gov.hk/pub/B71601FA2016XXXXB0100.pdf.
21 - Michisita, R., Hong Kong shadow companies are increasingly being used to engage in counterfeiting and other infringing activities in China,
Bird & Bird, London, 2015. Available at: http://www.twobirds.com/en/news/articles/2015/global/brandwrites-december/hong-kong-
shadow-companies-are-increasingly-being-used-to-engage-in-counterfeiting. Accessed 26 April 2017.
22 - US Chamber of Commerce, Measuring the magnitude of global counterfeiting, 2016, p. 3. Available at: http://www.theglobalipcenter.
com/wp-content/themes/gipc/map-index/assets/pdf/2016/GlobalCounterfeiting_Report.pdf.
Turkey
The third highest country of provenance in the external border seizure statistics by caseload in
2015 was Turkey, which was the reported provenance of 4 217 of IPR-infringing consignments
that year, 37 % of which were intercepted at the Bulgarian border23. All but one of these involved
road traffic, and infringing products were frequently encountered in volume, indicating that a
proportion of the consignments, if they had not been stopped, would have been intended for
wider distribution subsequently.
There would also appear to be a relationship between Turkey and Belgium, where 864
interceptions of IPR-infringing goods of Turkish provenance were reported over the year.
Antwerp, Bruges, Ghent and Ostend have in the past been identified as points of entry for large
infringing consignments and have often been cited as the reason that Belgium consistently
reports high numbers of recoveries annually. Nearly all consignments from Turkey recorded by
Belgium arrived either by air (45 %) or by post (51 %), with the remainder being shown as road
transport. Furthermore, 310 of Belgium’s 373 clothing seizures from Turkey pertained to five
items or less, indicating personal imports, most likely the result of internet commerce24.
Further analysis of EU-wide external border seizure data relating to Turkey reveals that only
18 maritime interceptions were reported across the EU in 2015 and that, with the exception
of road traffic crossing the Bulgarian border, IPR-infringing seizures were far more likely to
be sent by air, either by traditional air freight or by post. Ready-to-wear clothing consistently
topped seizures of Turkish provenance by unit volumes, but the country also shipped large
volumes of counterfeit labels, tags and stickers, frequently to the same MS to which the clothing
was sent. This was seen most frequently in Belgium, Bulgaria, Germany and Italy and could
be indicative of domestic manufacture, or of goods and labels sent separately, with the final
products assembled within the EU.
Seizures of Turkish provenance are increasingly likely to be lower unit volume consignments,
intercepted in higher frequency, most probably sent as small packages.
Thailand
Another notable country of provenance was Thailand, which appears to have had specific
links to the United Kingdom and Germany. Altogether, 1 154 interceptions of items of Thai
provenance were recorded in the United Kingdom, and a further 866 by Germany in 201525.
Once more, the vast majority of these seizures involved airborne consignments and in the
case of Germany, the key product types were labels, tags and stickers in combination with
ready-to-wear clothing. Notably, very few of the Thai clothing seizures in the United Kingdom
Singapore
Singapore was found to be a significant contributor to the German, Belgian and Italian caseload
statistics in 2015. Mobile phones (or their accessories) formed the bulk of exports to Belgium
and Germany, and these were again predominantly recovered in volumes of one or two items26.
The accessories for mobile phones that were shipped from Singapore to Italy were recovered
in significantly higher unit volume consignments however, indicating that they were due for
subsequent distribution.
In 2015, 14 million smartphones fewer were sold by the legitimate industry across the EU than
would have been the case in the absence of counterfeiting27. This translates into approximately
EUR 4.2 billion lost due to the presence of counterfeit smartphones in the EU marketplace,
corresponding to 8.3 % of the sector’s sales. After China and Hong Kong, Singapore was the
third highest country of provenance for IPR-infringing seizures of such items at the EU external
borders by caseload in 2015.
Malaysia
Although the country barely features in terms of caseload, significant numbers of IPR-infringing
items were sent from Malaysia to France, Slovenia and, to a lesser extent, Spain in 2015. The
French statistics are almost entirely accounted for by a single detention of 1 000 000 body care
items that arrived by maritime container, and are compounded by a further seizure of 10 800
items of foodstuffs, again sent by sea. Slovenia reported a series of very large-scale recoveries
of toys, labels, office stationary, bags and sports shoes, virtually all of which were the result of
maritime container interceptions. Spain recorded a series of bulk shipping container seizures
of parts and technical accessories for mobile phones, ready-to-wear clothing and sports shoes.
In total, Malaysia was recorded as the provenance of 2 615 869 IPR-infringing items seized at
EU container ports in 2015.
Vietnam
There were 496 000 packets of counterfeit cigarettes of Vietnamese provenance seized in a
single maritime consignment in Greece, and a further 500 000 packets were recovered whilst
being transported by road into Poland. Not only are these seizures indicative of a Vietnamese
speciality of tobacco counterfeiting, they also shine some light on potential transport routes
within the EU, whereby goods enter by ship in Greece and are subsequently moved by road
to their ultimate destination. Greece seized 7 306 656 packets of cigarettes in 2015, indicating
either that the MS may be a significant point of entry for such products, or that Greek customs
may have prioritised detentions of cigarettes.
The above seizures show how the EU is affected on two levels by two different types of IPR
crime business models. The first being e-shops or distributors that supply IPR-infringing items
to end customers in the form of frequent, small consignments, and secondly bulk exporters
that continue to favour large-scale freight consignments as a means of transportation but
may also supply e-shops, which will subsequently export the goods in smaller numbers. The
existence of particular relationships between specific countries may be the result of distinct
cultural, geographical or fiscal associations.
Key routes
The majority of counterfeit goods continue to arrive at the EU external borders from countries
in Asia, via sea, air or land routes.
The imported goods arrive typically from third countries to the major ports of entry in the EU
and transit via other MS to their final destination. However, once the goods are there, they can
be reshipped to other countries in the EU. This emerging pattern aims to diversify the routes
and disguise the origin of the goods. Goods shipped from EU MS are seen as at less risk of
interception than goods from outside the EU.
In this regard, the enforcement of IPR rights has recently been significantly strengthened with
the introduction of the 2016 European Union Trade Mark Regulation28. The proprietor of an
EU trade mark is now entitled to prevent all third parties from bringing goods into the Union
without being released for free circulation there, where such goods, including packaging, come
from third countries and bear a trade mark without authorisation. Therefore, EU customs
authorities may now take action in relation to goods from third countries that are transiting
the territory without being released for free circulation, if they bear an identical or essentially
identical trade mark to an EU trade mark29. This will have to be taken into account in the
customs enforcement of IPR, including goods in transit on their way from a third country to
another country, or under a storage procedure in a free zone.
Transportation methods
The traditional transport methods continue to be used. Counterfeit goods trafficked to and
intended for distribution in the EU are typically shipped in bulk using maritime shipping
containers. The volume of counterfeit goods detected in the EU having arrived in this manner
reflects the enormous production capabilities in Asia. The use of roll-on roll-off (ro-ro) ships30
as a means of transport for counterfeit products can pose a risk, and with the expanded
capacity of the Tanger Med FTZ, this risk may increase in the coming years, affecting mostly the
Mediterranean area and seaports with ro-ro terminals. Counterfeit products also arrive in the
EU by air freight as postal shipments.
Upon arrival at the seaports or airports, goods continue to be transported by road, in trucks,
vans or passenger cars, or even aeroplanes. Certain goods are transported across EU land
borders in lorries and even on long-distance buses, predominantly in the south.
In addition, long-distance cargo trains between Europe and China offer a possibility for quick and
relatively cheap transportation of goods and could be abused by criminals. Beijing to London
by train, a distance of nearly 12 000 km, only takes 18 days, about half the time of maritime
consignments. Despite the rising number of trains arriving from China at the EU external
borders, seizure figures attributed to this method of transport have remained consistently low.
In 2013, 6 cases were reported, 12 in 2014 and only 2 in 2015. This number of interceptions
28 - Regulation (EU) 2015/2424 of the European Parliament and of the Council of 16 December 2015, which entered into force on 23
March 2016. Available at: http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32015R2424&from=EN.
29 - http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=OJ:C:2016:244:FULL&from=EN.
30 - Ro-ro ships (roll-on roll-off) are vessels designed to carry wheeled cargo, such as cars, trucks, trailers, and railroad cars, which are
driven on and off the ship on their own wheels or using a platform vehicle. They are different from lo-lo (lift-on lift-off) ships, which
use a crane to load the cargo.
would appear to be especially low when considered against the advantages that rail transport
could potentially offer to international IPR-infringing criminal networks. Counterfeiters often
need to produce and ship products quickly, usually in reaction to emerging product trends and
demands in their chosen marketplace. Such goods are frequently cheap at the point of sale and
the use of air freight, despite being fast, is often too expensive. The average shipping container
can take up to 6 weeks and, although maritime transport still appears to be the preferred
means of transporting bulk shipments, largely because it is the most economic option, the time
delay incurred could impede a fast route to market for certain IPR-infringing goods. Therefore,
such rail connections could offer concrete advantages to international IPR-infringing criminal
networks, and should be kept on the radar. Alongside the traditional transport methods,
criminals increasingly use parcel and postal services to import and distribute counterfeit
products, this being closely related to the growing online sales.
Counterfeit goods or their spare parts are often sent as small parcels via postal or courier
services. This high-volume, low-quantity traffic makes controls and detections of counterfeits
more difficult, especially given the increasing flow of goods sold online and shipped in small
consignments. The increased use of postal freight and express freight for distribution of
counterfeit medicine is especially alarming.
Small consignments, now regulated by Article 2(19) and 26 of Regulation (EU) No 608/2013,
are defined as postal or express courier consignments that contain three units or less or that
weigh less than two kilograms. Postal and courier traffic constituted 77 % of all detentions
in 2015, even if detentions in postal traffic dropped by more than 20 % compared to 2014.
The most prevalent product types in postal traffic were electronic equipment (32 %) and
medicines (16 %)31. These are items that are widely available online and the vast majority of
these interceptions were likely to be personal imports purchased by individuals online, either
as ‘knowing’ customers, or as innocent parties. This decrease of 20 % was directly related to the
fact that applicants did not want to apply for the small consignments procedure. Regulation
(EU) No 608/2013 did facilitate a simplified procedure for processing IPR-infringing small
packages but, on the other hand, it limited access to data on origin, provenance, means of
transport and transhipment. In addition, it does not allow IPR holders to keep trace of cases
infringing their rights, which could have deterred some of them from applying for customs
actions in the first place32. Overall, the new Regulation is viewed as a more effective measure
for controlling small consignments, albeit that the process established for 2014 temporarily
placed extra administrative burdens on rights holders and customs, regarding reapplications
and the recording and processing of data.
31 - European Commission Taxation and Customs Union, Report on EU customs enforcement of intellectual property rights Results at the EU
border 2015, p. 7. Available at: https://ec.europa.eu/taxation_customs/sites/taxation/files/2016_ipr_statistics.pdf.
32 - European Commission, Directorate-General for Taxation and Customs Union, Report on EU customs enforcement of intellectual
property rights: results at the EU border 2015, Publications Office of the European Union, Luxembourg, 2016, p. 7.
External FTZs continue to pose a threat in the counterfeiting landscape, because the areas
afford counterfeiters the capacity to land consignments, adapt or otherwise tamper with the
loads or associated paperwork and then potentially re-export the products without customs
intervention, thus disguising the true origin and the nature of the goods, as well as the identity
of the original supplier.
Currently there are an estimated 3 500 free zones and special economic zones around the
world, indicating the speed with which new areas are becoming established33. Current FTZs
do not just service maritime traffic, as many are also located at international airports and at
national frontiers from which goods can be transported overland.
The challenge of regulating activities in FTZs stems largely from the absence of harmonised IPR-
enforcement standards. A small number of IPR-related incidents involving FTZs have resulted
in judicial enforcement but, despite widespread infringements associated with FTZs and
transhipments of infringing goods being suspected, relatively few cases have been reported
concerning enforcement of IPR in FTZs or in transit34.
Weaknesses continue to be found in several FTZs; some facilitated a series of organised crimes,
including narcotics trafficking, the illegal ivory trade, people smuggling and the counterfeiting
industry35. The seizure of a consignment of pharmaceutical products at Heathrow airport in
London, in transit from the Sharjah FTZ in Dubai, to a pharmacy located in the FTZ of Freeport,
Bahamas, is one example36.
Other cases variously involved counterfeit handbags, wallets and electrical equipment and,
whilst these incidents may not have a direct impact on the EU, they nevertheless demonstrate
that FTZs are used to facilitate international IPR crime37.
33 - World Free Zones Organization, Message from our CEO, http://www.worldfzo.org/Pages/CeoMessage.aspx. Accessed 26 March
2017.
34 - Business Action to Stop Counterfeiting and Piracy, Controlling the zone: balancing facilitation and control to combat illicit trade in the
world’s free trade zones, ICC, Paris, 2013, p. 25. Available at: http://www.ip-watch.org/weblog/wp-content/uploads/2013/05/FTZ-
report.pdf.
35 - DuBarry, S., Ametova, E., The paradox of free trade zones: economic prosperity and transnational crime, Florida International University,
Miami, 2014, p. 4. Available at: https://maga.fiu.edu/academic-tracks/capstone-project/2014-capstone-working-papers/socom-
capstone_dubarry_ametovav_edited-final_dawndavies.pdf.
36 - DuBarry, S., Ametova, E., The paradox of free trade zones: economic prosperity and transnational crime, Florida International University,
Miami, 2014, p. 4. Available at: https://maga.fiu.edu/academic-tracks/capstone-project/2014-capstone-working-papers/socom-
capstone_dubarry_ametovav_edited-final_dawndavies.pdf.
37 - National Association of Foreign-Trade Zones, Zones Reports, Washington, NAFTA. Available at: http://www.naftz.org/publications/
zones-report/. Accessed 26 March 2017.
PIRACY
2017 SITUATION REPORT ON COUNTERFEITING AND PIRACY IN THE EUROPEAN UNION
Legitimate sales to the end customer would take place through a trusted (and often proprietary)
website where, for a fee, the game could be downloaded.
With each link in the chain paying the previous one, the profits flow in the other direction and
each entity is remunerated accordingly.
In its most basic form, the illegal supply chain contains only two entities, both of which are
knowingly acting illegally.
As an illegal file-sharing website does not develop software itself, there is no illegal manufacture,
production or publishing in the strictly illicit model and, as the illegal gamer downloads the
software free of charge, there is no financial incentive for other intermediaries to involve
themselves in the process. This supply chain as a business model is somewhat compromised
therefore.
In order to overcome the issue of obtaining the digital games that are made available for
free downloading, and in order to generate revenues, the illegal digital games supply chain
integrates itself both with the legal model and with selected intermediaries.
Firstly, the infringers must gain access to an original copy in order to make the game available
illegally. This may be achieved by sourcing a genuine game from a legal paid download and then
re-engineering it, or by sourcing media from an end user that can then be used to produce the
copy for free downloading.
FIGURE 4:
Author
Publisher
€
Legal Illegal file sharing
Website Website €
€
Legal Illegal Advert
Gamer Gamer Agency
However, no funds are generated when the digital game is downloaded. This shortcoming is
often overcome by the sale of advertising space on illegal file-sharing sites and this process is
facilitated by advertising intermediaries.
Games (digital)
An average of 49 % of people aged from 11 to 64 in Germany, Spain, France and the United
Kingdom played some kind of digital game in Q1 2016, demonstrating the reach that this
industry now has38.
With the plethora of types of digital games, platforms and ways to access content comes a
multitude of opportunities to commit IPR crime, and many of these have long been exploited
by infringers.
In terms of hardware, counterfeiters have targeted games controllers in the past and a number
of instances of fakes in the apparently legitimate marketplace have been reported.
A further form of IPR infringement in the digital gaming industry is the counterfeiting of packaged
games, usually intended for use with a PC or games console. However, more recently, newer
technologies and faster internet speeds and accessibility have resulted in a rise in video-game
piracy and a corresponding decline in the production of packaged counterfeit games.
Some (but not all) further examples of IPR infringement in the digital gaming environment would
be purchasing a hacked paid game or the sale of paid game codes, cheating paid subscriptions,
downloading a game that has been ‘cracked’, whereby the password protection or security may
have been removed, purchasing existing passwords, user account numbers or downloading a
full game, with access codes, directly onto a chosen platform.
Whichever of these activities the illegal gamer chooses to pursue, there are numerous
websites offering the above services or products as free downloads or torrent files, and it is by
downloading that the majority of players will access their IPR-infringing content.
38 - ISFE Gametrack, GameTrack Digest: Quarter 1 2015, Brussels, ISFE. Available at: http://www.isfe.eu/sites/isfe.eu/files/attachments/
gametrack_european_summary_data_2015_q1.pdf. Last Accessed 26 March 2017.
Over the last two years, infringements of digital content protected by copyright and related
rights39 have attracted increasing attention as an area of criminal threat against IPR holders,
consumers and general societal interests40.
While digital piracy still exists in a physical form as illegal CDs41 and DVDs, the most prevalent
current threat stems from the online dissemination of protected content. Well known acts
of piracy on the open internet include the sharing of protected content through BitTorrent42
networks, illegally facilitating downloading or streaming from central sources and (under
certain conditions) illegally making links43 to IPR-protected content freely available without
rights holder consent.
Television broadcasts using internet protocol television (IPTV) are digital and are available on a
variety of platforms such as mobile phones, tablets, smart TVs and set-top boxes (STBs).
In recent years, the use of STBs to access large numbers of television channels, films and other
protected content has increased due to low prices, improving quality of services, reliability and
user friendliness. The illegal servers are almost always hosted with companies based outside
the jurisdiction of the countries targeted by the provider.
On 20 July 2016, the presumed founder of the most popular file-sharing website was arrested in
Poland and faces extradition to the USA for prosecution following federal charges against him for
extensive criminal copyright violations.
Wired. KickAss Torrents’ alleged founder arrested after Apple hands over record. Available at:
39 - On 21 September 2016, the EUIPO published a consumer-friendly frequently asked questions (FAQ) service in all official EU
languages. The FAQ addressed a number of practical issues concerning copyright protection and provided information about legal
and illegal activity, especially in the online environment. The FAQ are available here: https://euipo.europa.eu/ohimportal/en/web/
observatory/faqs-on-copyright.
40 - In the second EUIPO and EPO study on the contribution of copyright intensive industries to the European economy it was
estimated to be 6.8 % of GDP and 7.1 % of employment. The study is available at: https://euipo.europa.eu/tunnel-web/
secure/webdav/guest/document_library/observatory/documents/IPContributionStudy/performance_in_the_European_Union/
performance_in_the_European_Union_full.pdf.
41 - In the EUIPO report, The economic cost of IPR infringement in the recorded music industry (published 24 May 2016), it is noted that in
the largest market for recorded music, Germany, 75 % of music is sold in physical format. The report is available at: https://euipo.
europa.eu/ohimportal/en/web/observatory/ipr_infringement_music.
42 - EUIPO, Research on online business models infringing Intellectual Property Rights: phase 1, EUIPO, Alicante, 2017, p. 12. Available
at: https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/observatory/resources/Research_on_On-line_
Business_Models_IBM/Research_on_On-line_Business_Models_IBM_en.pdf.
43 - The Court of Justice of the European Union has defined in a number of judgments when linking to protected content is legal
or illegal, most notably the GS Media ruling of 8 September 2016, C 160/15. Available at: http://curia.europa.eu/juris/liste.
jsf?num=C-160/15.
A typical subscription to an illegal service provides the customer with access to potentially
thousands of television channels and often also offers the client access to ‘video on demand’
(VOD) and music catalogues as part of the subscription. The number of operators providing
illegal IPTV appears to be on the rise and this trend is expected to continue at an accelerated
rate in the future.
In a Danish criminal case that was investigated and prosecuted in 2014-2015, a young man had
launched a website making links to streamed popular television broadcasts freely available. The only
(very limited) revenue was generated from voluntary donations. The website ran from 27 November
2013 to 28 January 2014, when he let two friends take over the website. They immediately revised
the business model to include advertising revenue. The new website ran from May/June 2014 to
August/September 2014.
Three persons were convicted for copyright and related rights infringement and sentenced to 10
days’ suspended imprisonment, 60 days’ suspended imprisonment and 8 months’ suspended
imprisonment (in conjunction with other charges) respectively.
District Court of Aalborg, 22 April 2015, and District Court of Næstved, 1 October 2015. Available at:
http://www.stoppiratkopiering.dk/domssamling.aspx)
Card sharing (CS) involves several people sharing one or more legally purchased subscription
cards. Such card-sharing networks consist of several connected servers, making it possible to
access television signals. In practical terms, it is actually only the control codes (a small amount
of specific data) that are shared in the networks, rather than the broadcast signal itself. When
such signals are encrypted by the commercial providers of legal broadcasts, they have to be
decrypted for the user to actually see the broadcast on a television set. By sharing the control
codes in the card-sharing network, users can gain access to the broadcast signals for a fee that
is substantially lower than a legal subscription.
Whilst previously popular networks with restricted or permissioned access are still used to share
protected content, the use of hidden internet services like Darknet44, although still comparatively
limited, appears to be increasingly facilitating the illegal sharing of e books, entire databases
and, especially, illegally retrieved access codes to legitimate subscription services, which allow
unauthorised access to large libraries of IPR-protected films, music and other media.
In terms of financing the organised sharing of IPR-infringing digital content online, the main
source of revenue for infringing web services continues to be derived from advertising, but
illegal profits are also generated through subscription payments, payments per download and
Payment options for pirated content are often traditional credit card payments, but in recent
times, a number of services have increasingly been seen to provide payment options in virtual
currencies47, and certain sites have even limited the payment options exclusively to virtual
currencies.
The entities behind such infringing websites have increasingly developed and employed
methods to conceal their true identity and location. Legally available privacy shields and other
ways to conceal their identities have been effectively applied by the infringers. The websites
also often use several domain names and host identical content simultaneously at different
internet locations, thus avoiding disruption of services should law enforcement or civil action
be taken against them. This is very often combined with encouraging users of the websites to
bypass blocking orders and hide their identities, by way of reverse proxies and virtual private
network (VPN) services48.
Along with the perceived increase in the number of illegal websites, legal sources providing
access to digital content have also been increasing year by year, and such sites have evolved
significantly, both in terms of the number of services that they offer, and the quality and variety of
their content49. However, for many users, identifying whether a service is legal or not continues
to be a challenge. It is known that some European internet users continue to mistakenly take
the fact that a digital content service is freely available online without the authorities having
taken action as a sign that the service provides legal access to digital content50.
45 - OHIM, Digital advertising on suspected infringing websites, OHIM, Alicante, 2016. Available at: https://euipo.europa.eu/ohimportal/
documents/11370/80606/Digital+Advertising+on+Suspected+Infringing+Websites.
46 - EUIPO, Observatory work programme 2017 (DW4 initiative), 2017, p. 16. Available at: https://euipo.europa.eu/tunnel-web/secure/
webdav/guest/document_library/observatory/documents/about_us/observatory_work_programme_2017_en.pdf.
47 - EUIPO, Research on online business models infringing Intellectual Property Rights: phase 1, 2017, pp. 13-14.
48 - Office of the Intellectual Property Enforcement Coordinator, Supporting Innovation, Creativity & Enterprise: Charting a Path Ahead (US
Joint Strategic Plan on Intellectual Property Enforcement FY 2017-2019), White House, Washington DC, 2016, pp. 22-24. Available
at: https://obamawhitehouse.archives.gov/sites/default/files/omb/IPEC/2016jointstrategicplan.pdf .
49 - On 3 October 2016, the EUIPO launched agorateka (https://agorateka.eu/ea/), which provides access to national portals with links
to legal online digital content.
50 - EUIPO, Test case: legal online offers of music, EUIPO, Alicante, 2016. Available at: https://euipo.europa.eu/ohimportal/
documents/11370/80606/Test+case+-+Legal+on-line+offers+of+music+%28Oct+2016%29/d33bc6c6-30d6-4b01-a1bc-
5cbc0c2fb5c2.
Criminal groups
IPR crime is an area that allows a variety of criminal groups to operate. Criminals involved in IPR
crime may be part of an OCG or act as individuals. They can engage either in separate stages
of the illicit activity, such as production, transportation, distribution or retail, or be involved
throughout the entire process. The scope of their involvement partially depends on their
resources, expertise and focus (either explicitly in IPR crime or also in other crime areas).
Since the production of counterfeit goods continues to take place predominantly outside
Europe, EU-based OCGs catering for the EU market rely heavily on manufacturers of counterfeit
goods abroad. These groups therefore, are not directly involved in the production. Instead,
they place orders with the producers and manage the next stages of the criminal activity:
importation, transportation, storage and distribution of the counterfeit goods.
Only a limited number of OCGs are involved in the production of counterfeit goods in the EU.
However, these groups tend to control the entire process, from the supply of raw materials
and machinery, the establishment of a clandestine production facility and production of goods,
to their transportation, storage and retail. Criminal groups involved in large-scale production
often display substantial financial resources and links to other forms of crime, typically money
laundering, excise fraud or drug trafficking. Other EU-based OCGs focus on the production of
small quantities of counterfeit products, such as clothes and leather products.
Although OCGs involved in counterfeiting tend to operate independently, contacts with other
groups may be established on an ad hoc basis to carry out specific activities. Criminal groups
may outsource certain activities, such as importation or transportation, to benefit from other
groups’ expertise, resources or competitive advantages, such as favourable locations for EU
entry points.
The majority of identified OCGs are hierarchically structured. The leader manages the overall
activity, gives orders to subordinates, and recruits new group members. He or she is also
in charge of the financial side, controls the profits, and decides on possible reinvestments.
The leader often also has the primary access to the network of contacts, including to corrupt
officials collaborating in the activities. In such centrally managed groups, the tasks and roles are
clearly divided between the members. Typically, different group members are responsible for
organising the import, transportation, storage, sales, and distribution of the counterfeit goods
The area is also an important point of entry for foreign goods, in particular from countries such as China, Egypt and
Turkey, from which many counterfeits originate, as well as unbranded products that are subsequently labelled in
Campania with counterfeit logos and packaging.
The presence of the abovementioned ex-employees and their associated know-how ensures the process of production
runs successfully.
Recent times have seen the arrival of a large community of Asian citizens, especially Chinese, who have created their
own IPR-infringing business areas, which may include the import and/or manufacture of such goods.
A further challenge for authorities in this area is that many people pay little attention to the provenance of goods, even if
buying counterfeits results in purchasing an item that is of a lower quality than the original. Large amounts of counterfeit
goods (except food, medicines and cosmetics) are sold by street vendors and their non-authenticity is clearly evident
and fully accepted by the customer, who wishes to fulfil a desire for luxury items at a low cost.
Organised criminals in the area rarely produce counterfeits directly but involve themselves in the following ways:
t hrough their control of the territory, they acquire a right to a share of the profits originating from those who
manage the local production of counterfeited goods. Because this is an illegal activity that is relatively easy for law
enforcement to detect, the counterfeiters appreciate the guarantee of protection offered by organised crime;
with finances to invest in the counterfeiting activities, which offer high profitability and a reduced risk of lengthy
criminal sentencing compared with other criminal activities, such as drugs or extortion.
Whilst there are many business models, the predominant illegal IPR-infringing phenomena in this region are:
holesale importation of counterfeits, which are either sold locally or dispatched to other areas of the country;
w
importation of unbranded goods, in particular from the clothing sector, which are then transformed locally with the
addition of fake logos to produce counterfeits;
local production of counterfeited goods, particularly leather goods and shoes, copying the authentic models and
reproducing fake labels and logos;
local production of identification marks (also boxes, labels and other objects) for the transformation of the final
product into a counterfeit;
counterfeits being openly sold by small street traders in various market areas.
or parts thereof. The common roles include drivers, logistics support, storage keepers, front
men or women, couriers, distributors, and people securing the import and its transportation.
In addition, some group members are explicitly tasked with laundering the profits from the
criminal activity. These groups generally bring together several nationalities; they are highly
mobile and are usually active in several countries inside and outside the EU.
Certain criminal groups involved in counterfeiting consist of members linked by ethnic ties or
kinship. Groups composed of members of Asian origin remain especially active in the EU and
often take advantage of an extended network of contacts across Europe and in their countries
of origin. Such groups are particularly hierarchical, well organised and disciplined. They rely on a
strong concept of belonging and solidarity among members and potential affiliates. Moreover,
these groups are often poly-criminal and engage in other crime areas, such as trafficking in
human beings or drug trafficking.
However, family-based OCGs tend to have a more egalitarian approach towards their members.
They usually have similar functions and importance in the group.
The majority of the identified OCGs are large in size. They typically consist of more than 12
members, with 5-6 core members on average. This may be explained by the number of
different tasks within the supply chain that have to be carried out.
Use of expertise
The level of specialisation, and the need for it, varies throughout the stages of the illicit activity.
The production and import of counterfeit goods, unlike distribution, often require specific
expertise. For instance, OCGs make use of chemists for the production of certain goods, such
as counterfeit pharmaceuticals or pesticides. Some criminal groups also seek specialists at
later stages of their activity, primarily to develop and manage their illicit businesses. Financial
experts, lawyers or other specialists with a strong knowledge of EU trade and migration law
tend to be used in advisory roles. The increasing importance of online trade also requires a
specific set of IT skills. However, the offline distribution of goods does not involve any particular
expertise and can be widely carried out by non-professionals.
In the area of piracy, IT specialists are used to create and manage sharing and streaming
platforms. They also establish a network of uploaders (people who contribute the IPR-infringing
content), who are paid depending on the quality of supplied product, linked to the number of
downloads. In some very limited cases, coding, knowledge of malware and specific software
used for illicit financial transactions can be in demand.
Generally, the overriding purpose behind the involvement of experts and specialised tools is to
perfect the criminal activity and avoid detection.
Europol Press release, 25 May 2016, ‘Spanish network behind the illegal distribution of pay TV
channels’
The modi operandi in counterfeiting and piracy have partially changed over the past few years
and are expected to evolve further in the future. The growing role of technology and online
trade shapes the new dynamics within this crime area. Almost every stage of organised criminal
activity can be increasingly influenced by technological developments. This only proves that, to
a certain extent, the evolution of the trade in counterfeit products resembles the evolution
seen in the legal business sector.
A digital business
This is particularly true for the procurement of counterfeit goods. The internet greatly enables
contacts with providers or manufacturers of goods located in other countries, often in Asia.
Businesses run by criminals increasingly develop and maintain online trade relations with
manufacturers in source countries. Transactions are now often exclusively finalised via the
internet, without the necessity of travelling to the source country to negotiate and conclude
the trade deal. An example of one EU-based OCG shows how easily available technology has
contributed to the cost-efficiency of its operating methods. In that case, trade deals were
finalised between Europe and Asia entirely digitally. Pictures of counterfeit goods, including
clothing, shoes, watches, perfumes and pharmaceutical products were sent to the mobile
phones of the criminals. Following price negotiations, the goods were also ordered by mobile
phone. These transactions were quickly concluded and did not require any personal contact
between the parties involved.
Distribution and sales follow a similar approach. Online marketplaces have become key
distribution channels for counterfeit goods. Fake products are sold on major, widely available
and trusted platforms, or by online pharmacies. Even space in containers can be purchased on
some of the well-known online marketplaces.
In 2016, Operation In Our Sites (IOS) VII resulted in the seizure of 4 780 domain names and
associated online shops selling counterfeit merchandise. It led to the arrest of 10 people and seizure
of goods worth over EUR 1.75 million. The operation tackled copyright-infringing websites and third-
party marketplace listings selling luxury goods, sportswear, spare parts, electronics, pharmaceuticals,
toiletries and other fake products.
Europol Press release, 28 November 2016, ‘Over 4 500 illicit domain names seized for selling
counterfeit products’
An increase in online trade offers numerous advantages for criminal groups. Counterfeit goods
are available to a large number of potential buyers and as a result, stable profits for OCGs
are ensured. Secondly, the internet allows for greater anonymity of sellers and possibilities of
covering their tracks. The borderless nature of the internet is instrumental in facilitating criminal
activities that, to a large extent, take place internationally. A website may be registered in one
country, the bank account for payments in another, consignments are sent from yet another
country — all of these elements can be easily coordinated by criminals that do not reside in
any of these countries. It is also relatively easy to introduce counterfeit goods into the online
marketplace. They can enter undetected and become part of the broad range of products
already available online, on numerous e-shops and platforms. Consumers buying from online
platforms provide their own product specifications and have access to a greater variety of
counterfeit products. The counterfeit goods sold on the internet are usually distributed in small
parcels via postal and express freight services, often directly to customers.
The operation also targeted the main areas exploited by organised crime in the online medicine
trade: rogue domain name registrars, electronic payment systems and delivery services.
Europol Press release, 10 June 2016, ‘Online sale of fake medicines and products targeted in
Operation Pangea’
Counterfeiters are also well aware of the importance of online marketing. They tend to use
social media platforms to advertise their products and steer potential consumers to online sales
platforms. On the other side of the advertising industry, websites selling IPR-infringing products
also financially benefit from the advertisements. Sometimes, even famous brands unconsciously
publish their advertisements on such websites, causing damage to their reputation and
bringing no return on investment51. Such practices are risky as the advertisements placed on
commercial-scale IPR-infringing websites and apps may lead to malware or spyware. Both the
brands and advertising companies bear some responsibility in this regard. The legitimacy of
online platforms should be duly verified in order to prevent or minimise any additional revenue
for IPR-infringing websites.
The internet is borderless and online trade in counterfeit goods affects all EU countries and
increasingly all products.
The trade in counterfeit goods continues to resemble the licit trade. First of all, criminal groups
tend to operate like businesses, following the logic of trade and aiming to increase their
effectiveness and profits. In order to succeed, illicit trade, very much like the trade in legitimate
goods, has significantly shifted to online marketplaces. It also increasingly makes use of online
advertising and other effective sales techniques. Secondly, criminals, driven by financial profit,
are capable of expanding their activities by engaging in sales of a broader range of counterfeit
products, diverting fake goods from one country to another or even shifting to other crime
51 - OHIM, Digital advertising on suspected infringing websites, OHIM, Alicante, 2016. Available at: https://euipo.europa.eu/ohimportal/
documents/11370/80606/Digital+Advertising+on+Suspected+Infringing+Websites.
areas. For the very same reason, improving profitability, intra-EU production continues to attract
criminal groups. It reduces transportation costs and lowers the risks of detection by customs.
Thirdly, like successful legitimate businesses, OCGs involved in IP crime continue to adapt to
the changes in the environment they operate in. They remain well informed about trade laws
and customs procedures and use loopholes in the system to increase their financial profits.
Criminal groups continue to monitor market demand and differences in prices of products
across the EU in order to move counterfeit products quickly from one country to another.
Finally, similarly to legitimate companies, criminal groups involved in IP crime rely heavily on
commonly used business structures in order to carry out their activities effectively.
Criminal groups continue to set up or infiltrate existing legal business structures. In order to
operate, they tend to establish numerous multipurpose companies to organise import/export,
transportation, delivery and distribution of goods. The process of setting up such companies
is often facilitated by the use of illegally obtained documents, such as visa or work permits, or
fraudulent identity cards.
To diminish their liability whilst developing and maintaining illegitimate business links with
manufacturers in other countries, criminals often rely on various front companies. These companies
often incorporate a well-known brand name with the intention of misleading the customers.
Generally, these business structures are often used to merge legal and illegal profits and to
maintain a facade of legitimacy.
Criminals infiltrate legitimate supply chains at different levels, often by means of fraudulent
documents and/or corrupt practices. They are also specialised in diverting trade from one
country to another based on the differences in demand and price of products. Diverted
counterfeit pharmaceuticals pose a special risk. To enter the supply chain in another country,
where prices for medicines are higher, they are often repacked and contain translated
instruction leaflets. Criminal groups also insert counterfeit products into discarded genuine
packaging, in order to introduce them into the legitimate supply chain.
OCGs may also infiltrate production lines and wholesalers. Wholesalers and semi-wholesalers
are weak points, especially for counterfeit technical products, such as fake semiconductors
or ball bearings. Some cases have highlighted that even a secure supply chain of official
wholesalers or major international companies can be abused by criminal groups and result in
companies unintentionally purchasing counterfeit products.
Europol press release, 29 June 2016, ‘One of Europe’s biggest online sellers of counterfeit products
arrested’
To be able to carry out such a variety of activities, criminal groups need stable access to resources.
However, this does not seem to pose any major difficulty for criminals. Widely available and
affordable information and communication tools increasingly facilitate their activities. Being in
possession of properties, often used as warehouses, and vehicles, used for transportation of
goods, makes it easier for criminals to operate. In addition, capability to recruit new members
ensures smooth running of the criminal business. Last but not least, OCGs are able to finance
their actions. Their capital has often been obtained from other criminal activities.
Poly-criminality
The example of financial resources derived from other criminal activities reinvested in IPR crime
shows the typical poly-criminal nature of crime groups involved in this area. They frequently
engage in other criminal activities, mostly in drug trafficking, excise fraud, human trafficking
and money laundering.
In addition, criminals acting as distribution networks tend to traffic more than one illicit product.
Their portfolio is diverse and often includes the distribution of other illegal product types, such
as illicit drugs.
Even OCGs that are exclusively dedicated to IPR crime often need to rely on VAT fraud and
acts of corruption in order to operate. Money laundering is also frequently an indispensable
element of IPR crime.
In 2015 and 2016, Europol supported an operation targeting an Italian OCG selling counterfeit
champagne in various Member States. Investigations in Italy and Germany revealed that one of the
main suspects was also involved in the trafficking of cocaine.
During house searches in Germany, investigators seized more than 12 000 bottles of fake champagne.
The investigation also uncovered links to VAT and excise fraud.
Document fraud
Document fraud continues to play a key enabling role in trafficking of counterfeit goods to the
EU. Fraudulent documents are widely used to facilitate the transportation, distribution and sale
of counterfeit goods.
For the purpose of importation, counterfeiters provide false shipping documents, such as bills
of lading, to conceal the content of containers of packages and the origin of shipments. They
often use false invoices issued for imported goods in declarations to customs. This practice is
also used to undervalue their imported products.
At the stage of distribution of counterfeit goods, fraudulent retail licences enable the infiltration
of the legitimate supply chain.
Generally, in order to run their illicit businesses, OCGs establish companies and bank accounts
using fraudulent identity documents or under the name of a front person, and regularly make
use of bogus invoices. The OCGs purchase or rent vehicles using fake documents. Number
plates of cars belonging to criminal groups are registered abroad or under a fake identity.
Corruption
Corruption also continues to greatly facilitate criminal activities in this area. For instance,
corrupting public servants enables the import and transit of counterfeit products. Issuance
of visa or work permits by corrupt officials may also allow criminal actors to legally establish
companies involved in IPR crime. A network of brokers and agents uses corrupt practices to
infiltrate the legitimate supply chain, especially during distribution and sales. Bribes are also
used to persuade owners of legitimate businesses to cooperate with criminal groups along the
supply chain.
IPR crime proves to be a lucrative business. OCGs involved in counterfeiting and piracy regularly
launder their criminal proceeds. The capital is often moved through various bank accounts
Illicit financial gains are often introduced into the legal economy, mostly through real estate
investments or purchases of luxury products and gold. Legal businesses, owned by criminals,
remain an essential element of money-laundering activities. They enable trade-based schemes
that do not often involve the physical movement of cash and provide a facade of legitimacy for
money transfers.
Some OCGs use their illicit proceeds to expand their criminal activity.
In December 2016, a criminal network involved in intellectual property crime and money laundering
was dismantled in La Junquera, Spain. The criminals imported clothing and accessories from
companies in various countries, mainly China, Portugal and Turkey. Some products, (leather goods
and belts) were counterfeited in Spain through the purchase of ‘white’ label products to which they
applied logos and names of recognised brands. The goods were distributed through legal retailers.
Secret warehouses concealed behind fake walls were used to hide the newest merchandise in the
event of police intervention. The network was structured in three homogeneous groups with no
clear hierarchical leader and operated in a perfectly coordinated way to share supply channels,
warehouses and money-laundering mechanisms. They relied on a sophisticated network of fictitious
companies and front persons to launder the proceeds of their criminal activities (estimated at EUR
9 million). Investigation led to the seizure of 150 bank accounts, 30 high-end vehicles, EUR 13 000 in
cash and about 265 000 products infringing intellectual property rights (textiles, footwear, watches,
sunglasses, leather goods and jewellery).
Europol press release, 9 December 2016, ‘Main European Union hub for distribution of counterfeit
goods dismantled’
The shift towards online trade in counterfeit goods poses new challenges for law enforcement.
The internet allows criminals to employ international operating methods. These increase the
challenges for cross-border investigations, and often hamper prosecutions in multiple jurisdictions.
Products sold online are frequently distributed in parcels via postal services. It remains
difficult to detect illicit goods within the increased overall traffic of parcels. Criminals identify
this low-risk opportunity and exploit it to their advantage. Whilst sending counterfeit goods,
component parts or labels via postal services, criminal groups tend to use fraudulent identities.
This significantly complicates operational activities such as controlled deliveries and searches
performed by law enforcement. In addition, they seem to adjust the volume of their shipments
to reach the potential level of tolerance shown by customs and rights holders. One box of
counterfeit shoes may not necessarily lead to an investigation into IPR crime, as opposed to
one seized container of such products. Moreover, the increased intra-EU production has an
impact on the work of law enforcement. It has been reported that identifying and dismantling
domestic clandestine production facilities proves difficult, partly due to the effective methods
used by criminals to conceal their activities.
Techniques
Over recent years, criminal groups and individuals involved in IPR crime have developed a
good understanding of law enforcement techniques. They are able to regularly use various,
predominantly traditional, countermeasures. In the first place, criminals aim to secure their
communications by regularly changing telephone numbers, using numerous foreign SIM
cards or prepaid mobile cards, and encrypted communication tools. They sometimes also
communicate using different dialects or codes.
Other operating practices regularly used by criminals also hamper the detections made by
law enforcement. For instance, OCGs often separately import and transport different parts
of counterfeit products to be assembled later. Counterfeit goods are also often shipped
together with genuine products. When transported in bulk in containers, they are usually
well hidden between other legally declared product types. To further conceal their criminal
activities, criminals frequently change vehicles, often hired or leased using fraudulent IDs,
and rely on cash payments not to leave any tracks of unlawful transactions. Such approaches
Powers
In certain MS, the relevant authorities still lack adequate powers to effectively tackle
counterfeiting. Under criminal procedures, they cannot seize counterfeit goods or start
investigations into IPR crime without the rights holder’s confirmation of the IPR infringement.
IPR holders might also opt for a civil procedure to enforce their rights in some instances. A
low number of criminal investigations may partially result in a fragmented intelligence picture
of IPR crime. The limited enforcement powers within the FTZ remain especially challenging.
Unspecialised or insufficient resources also hamper the efforts of law enforcement to prevent
and combat this crime.
Acceptance
Over recent years, customers of counterfeit goods have developed a higher level of tolerance
towards this crime. Due to the perceived low financial damage and apparent common social
acceptance of the phenomenon, they may sometimes refrain from reporting these incidents
to the authorities. Consequently, they remain uninvestigated.
Generally, a lack of satisfactory enforcement, combined with low sanctions for IPR crime
continue to attract OCGs into this crime area.
Priorities
The threat and prevention of terrorist acts in their many forms, as well as addressing other
serious organised crimes, often overshadow other priorities. IPR crime nevertheless continues
to be one of the most lucrative criminal enterprises, and the fact that the illegal funds generated
have been linked to organised crime means that tackling IPR crime should remain on the EU
law enforcement and policymaking radars, not least to deprive those involved in other criminal
enterprises of their revenue streams.
Customs focus
The number of overall detentions at the external borders has remained relatively stable in
recent years, indicating that customs administrations may be working close to their maximum
capacities allocated to IPR enforcement. However, an overall reduction in customs resources,
along with the fact that they are facing the challenge of processing ever-increasing numbers
of small packages, could cause the total amount of counterfeit products entering the EU to
remain stable.
Penalties
Criminal sanctions for trade mark and copyright infringements remain a matter for MS
individually and the measures available differ.
The average maximum number of years that a defendant can be sentenced to for trade mark
infringements is four52. The average maximum fine (derived from submissions from 12 MS)
amounts to EUR 126 691. For copyright offences, the maximum period of imprisonment is
again on average four years and the maximum average fines stood at EUR 120 183.
Certain MS have the capacity to apply substantial punitive measures for the commission of IPR
crime. Indeed, some theoretically have the power to levy very substantial sanctions. However,
the above penalties apply only in the most severe and often repeat levels of commercial scale
IPR crime, and at the lower end of the spectrum, where it is a first offence or there are other
mitigating circumstances, sentencing in some MS stands at short-term imprisonment, often
suspended, or a fine of as little as EUR 38.
IPR crime is not only attractive to criminals as the sentences are low, but in addition, with the
prospect of punishing a defendant with a fine of EUR 38 or one month’s imprisonment (if at all),
pursuing such cases may not have great appeal for prosecutors or investigators in some MS
and therefore, some cases may not come to court in the first place.
When an IPR-infringing seizure is made, the illegal products and the associated packaging
must ultimately be destroyed, subsequent to being stored (securely and potentially for a
long period) and used as evidence in legal proceedings. In over 90 % of the external border
seizures performed by EU customs in 2015, the goods were either destroyed, or the rights
holder initiated a court case to establish IPR infringement, usually resulting in destruction, and
constituting a financial commitment53.
Regarding destruction costs in criminal proceedings, the MS usually bore the financial burden,
but in customs proceedings it was the rights holder that was frequently liable for the costs of
both storage and destruction. Where storage and destruction costs could be recovered by the
MS, significant differences were found in the level of restitution.
52 - EUIPO, Seminar for Intellectual Property Rights and enforcement judges and prosecutors, held in May 2016.
53 - European Commission, Directorate-General for Taxation and Customs Union, Report on EU customs enforcement of intellectual
property rights: results at the EU border 2015, 2016, p. 7. Available at: https://ec.europa.eu/taxation_customs/sites/taxation/
files/2016_ipr_statistics.pdf.
Industry concern focuses mainly on the possibility that rights holders, be they large companies
or SMEs, may not be prepared, or could not afford to pay for storage and destruction costs
in the more expensive MS. Although enforcement of IPR under the rules of Regulation (EU)
No 608/2013 is a cost-effective measure for rights holders to protect their rights, due to the
fact that there is no fee for submitting an Application for Action (AFA), the obligation for rights
holders to bear the storage and destruction costs, along with the lack of control over the
costs, may deter some of them from submitting the AFA. The danger of this is that counterfeit
goods may enter the EU undetected as the authorities have not been alerted to the potential
existence of illicit consignments.
Despite the complex challenges, there are many initiatives and good practices aiming to
address them.
The successful launch of the joint OECD-EUIPO report on Trade in Counterfeit and Pirated
Goods (the 2016 Study) has triggered the attention of numerous public stakeholders. Follow-
up topics to be analysed from 2017 to 2018 are the role of FTZs in the process of illicit trade,
postal and courier/express distribution streams of illicit trade, as well as an analysis of illicit
trade conducted via the internet. Furthermore, selected in-depth quantitative investigations in
the area of trade in counterfeit and pirated products will be produced. The planned work will
result in four main, stand-alone, joint OECD-EUIPO studies, addressing the main intelligence
gaps in the area of IPR.
It will be undertaken as an activity of the OECD Task Force on Countering Illicit Trade in the
context of the OECD High Level Risk Forum in collaboration with other relevant OECD bodies,
including the Committee on Industry, Innovation and Entrepreneurship (CIIE), international
organisations (such as the WCO, WIPO, Europol and Interpol), civil society and, private
stakeholders.
Europol Intellectual Property Crime Coordinated Coalition (IPC3) and EUIPO enforcement
tools: supporting the work of national law enforcement authorities
To strengthen the fight against counterfeiting and piracy online and offline, Europol and the
EUIPO joined forces to launch the Intellectual Property Crime Coordinated Coalition (IPC3) in
July 2016.
The IPC3, located at Europol and funded by the EUIPO, provides operational and technical
support to law enforcement agencies and other partners in the EU and beyond. Among other
activities, it facilities and coordinates cross-border investigations, monitors and reports online
crime trends and emerging modi operandi, raises public awareness of this type of crime and
provides training to law enforcement officers on how to combat it. Currently, the IPC3 supports
more than 50 IPR-infringing cases, all classified as high priority. The operational and technical
support provided by the IPC3 to law enforcement agencies and other partners is increasing
steadily54.
54 - https://www.europol.europa.eu/about-europol/intellectual-property-crime-coordinated-coalition-ipc3.
The EDB is built on existing EUIPO databases, such as TMview for trade mark information and
DesignView for registered Community designs. It is endorsed by the European Commission,
which has agreed to connect it to their EU customs’ secure network.
Customs authorities from the 28 MS currently use the EDB, as do a number of national police
authorities. They can view information and product details, making it easier for them to identify
counterfeits and take action. The database is integrated with the EU law enforcement agency,
Europol, and the European anti-fraud office, OLAF.
Companies from various sectors of industry doing business in the EU are already using the
database — from small businesses to multinational corporations55.
The EUIPO, through the Observatory, works with EU enforcement authorities to establish best
practices in data collection across the EU. ACIST converts the collected data into a harmonised
format so that it can be compared and aggregated. Currently, ACIST provides information on
the counterfeited and pirated goods detained at all EU MS borders. It also provides information
on the national markets of 17 Member States. ACIST is a good source of information, also used
for the purpose of this report in order to present a comprehensive picture of IPR infringements
across the EU.
Based and located on the CEPOL56 e-net, as of October 2017, the VTC on IPR will offer learning
content and other useful material provided by the EUIPO and its partners. It is designed for
students from law enforcement authorities of the EU Member States enforcing IP rights at
national and local level (police and customs officers, prosecutors, judges and market inspectors).
Learning content will be organised in knowledge areas and levels: basic, intermediate and
advanced.
The VTC on IPR will also have an area dedicated to training the trainers. Learning content will be
offered as e-learning modules, live and recorded webinars, presentations and video materials57.
Other useful materials cover reports and studies of the Observatory and other relevant EU and
international bodies.
55 - https://euipo.europa.eu/ohimportal/en/web/observatory/enforcement-database.
56 - CEPOL is the European Union Agency for Law Enforcement Training.
57 - https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/contentPdfs/about_euipo/the_office/work_
programmes/EUIPO_Work_Programme_2017_en.pdf.
THREATS REVISITED
2017 SITUATION REPORT ON COUNTERFEITING AND PIRACY IN THE EUROPEAN UNION
The 2015 Situation Report on Counterfeiting in the EU identified a series of potential future threats
to EU IPR integrity and this section of the report will first review developments in the fields
originally covered, before assessing any further issues that have arisen, or could materialise in
the coming years.
Tanger Med
Concerns were raised around the then unfinished works to extend the size of Tanger Med
as an FTZ and free port by 2017, and the potential dangers that the FTZ could pose to EU IPR
integrity, given its proximity to Spain. It was thought that the extension of Tanger Med could
provide an opportunity for counterfeiters to tranship and prepare products for distribution in
the EU from just outside the borders.
Tanger Med is now believed to be operating close to the full capacity predicted but the full
impact of this facility so close to EU external borders in terms of IPR integrity has yet to be
quantified. No noticeable increase in seizures from this region at the Spanish borders was
recorded in 2013–2015, with the vast majority of Spanish IPR-infringing cases emanating from
China and Hong Kong58.
Certification labels
The misuse of certification labels, not just in relation to safety and quality certificates applied
to counterfeit or substandard industrial machinery, but also in the food and beverage sector,
was highlighted in 2015.
Depending on the product, or a product’s intended application, there are many organisations
globally with core competencies in safety and quality certification. In many cases, evidence of
endorsement by one of these entities is compulsory by law. Counterfeiters therefore regularly
falsify these certification marks and apply them to fake products to make them appear genuine.
One such organisation has recorded approximately 400 current known abuses of their
certification labels or certificates, through their being counterfeited and used illegally on unsafe
products59.
58 - DG TAXUD.
59 - http://www.tuev-sued.de/product-testing/_services/markets_and_competition/quality_and_test_marks/abuse_of_quality_marks/
black_list.
In 2015, the food industry saw a growth in the abuse of ‘organic’ labels attached to products
that did not comply with the organic certification but had higher retail prices, and a growth in
the misuse of such labels in the future was anticipated.
The value of falsely labelled geographical indication infringing (GII) products in the EU remains
high, with the main producers of the original products, such as Germany, Spain, France, Italy
and Greece, being the most affected by counterfeit labelled comestibles60. The products
affected included wine, other spirits, cheese, meat, fruit, vegetables and cereals61.
There were reported seizures of 16 618 items of such goods at the EU external borders in
2014, but very few in 2015. The current low number of AFAs concerning GII could also partly
explain the low number of customs detentions concerning this type of IPR. Regardless of the
fact that very few seizures were recorded, the risk of GII products remains substantial, but
potentially it is more a matter for domestic enforcement, because many of these goods are
manufactured and traded in proximity to the regions in which they claim to be legitimately
manufactured.
These products were identified in 2015 as an increasing phenomenon in the EU, developing
in parallel with increased demand for lifestyle drugs and organic foods, EU MS started to see
growing seizures of doping products and food/herbal supplements arriving by parcel post.
Since 2013, when 2 062 items of foodstuff were intercepted as express courier traffic, minimal
recoveries of such infringing product types in this, or any other, transport stream have
been recorded in the external border seizure statistics. Nevertheless, food and beverage
counterfeiting in its many forms is clearly still a serious issue for EU IPR integrity and consumer
welfare.
60 - EUIPO, Infringement of protected geographical indications for wine, spirits, agricultural products and foodstuffs in the European
Union, EUIPO, Alicante, 2016, p. 7. Available at: https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/
observatory/documents/Geographical_indications_report/geographical_indications_report_en.pdf.
61 - EUIPO, Infringement of protected geographical indications for wine, spirits, agricultural products and foodstuffs in the European
Union, EUIPO, Alicante, 2016, p. 7. Available at: https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/
observatory/documents/Geographical_indications_report/geographical_indications_report_en.pdf.
In September 2015, a joint US Drug Enforcement Administration and Europol operation targeted
every level of the illegal anabolic steroid industry — from the manufacturers in China to the traffickers
that market the lethal doses in Europe and beyond.
In total, 135 000 steroid dosage units were seized, as well as 636 kg of raw steroid powder of
Chinese origin. USD 2 million and assets were also seized, and dozens of search warrants were
executed on targets, resulting in 92 arrests and the seizure of 16 rogue steroid laboratories. Raw
ingredients, equipment and instructions on how to make complex, illicit and potentially dangerous
pharmaceuticals are often found in these underground steroid laboratories. The above products
are frequently obtained by the criminals on the internet from Chinese chemical manufacturing
companies.
In 2016, EUR 1.3 billion of revenue and taxes were directly lost annually to the MS through such
IPR infringements, along with EUR 3 billion of lost sales to the EU economy, and job losses of
about 23 40062.
This type of IPR infringements continues to pose a threat. The methods are increasingly diverse,
and range from the abuse of geographical indications to more traditional counterfeiting, such
as refilling high-end bottles from recognised producers or the use of fake labels and packaging.
62 - EUIPO, The economic cost of IPR infringement in spirits and wine, EUIPO, Alicante, 2016, p. 5. Available at: https://euipo.europa.eu/
tunnel-web/secure/webdav/guest/document_library/observatory/resources/research-and-studies/ip_infringement/study8/wines_
and_spirits_en.pdf.
More widely, the joint Europol-Interpol Operation Opson V ran over the course of four months
(November 2015-February 2016) across 57 countries. It resulted in the total seizure of 11 131.18
tonnes, 1 449 056.40 litres and 5 549 328 units of either counterfeit or substandard food and
beverages, as a result of checks carried out at shops, markets, airports, seaports and industrial
estates across the globe.
In February 2016, Italian Guardia Di Finanza found over 9 000 bottles of counterfeit Moët & Chandon
in Padova, describing the seizure as ‘one of the most significant seizures of counterfeit bubbly in
Europe’. The illicit batch was estimated to have a potential resale value of EUR 350 000, making it one
of the largest seizures of counterfeit champagne in Europe. Along with the fake Moët & Chandon
bottles, 40 000 counterfeit labels were also discovered, estimated to be worth a further EUR 1.8
million, if they had been used to produce further counterfeit bottles.
3D printing
The 2015 Situation Report identified 3D printing as a possible emerging threat, both in terms of
the opportunity these devices could afford counterfeiters to produce illegal replicas of existing
objects, and the potential for entities currently involved in the production of conventional
counterfeit toner cartridges to diversify into producing fake raw materials for use with 3D
printers.
Many of the concerns expressed have yet to materialise however, largely due to the fact
that in the most part, current 3D-printing technology lends itself more to low-volume, time-
consuming and, arguably, costly manufacture. In order for a counterfeit product to be viable, it
would generally need to be produced in high volumes, at a low cost and quickly, none of which
are features of most current 3D-printing solutions available publicly. That is not to say that
‘counterfeits’ have not already been seen however.
In 2015 Nintendo filed a patent for a new digital games controller, to be launched alongside the
company’s new system in 2016.
Soon afterwards, rumours of the device’s revolutionary design and pending launch began to circulate
on digital gaming forums and associated social media. As interest grew, photos of the device, looking
remarkably similar to the patent previously filed by Nintendo, were subsequently uploaded by
different Reddit users.
Those products were counterfeits, created with the use of 3D-printing technology.
They were not functional or intended as counterfeits in the traditional sense, but nevertheless, the
cases demonstrate that if IPR criminals are willing to apply themselves, as the technology inevitably
becomes more accessible, affordable and expeditious, 3D printing has the potential to pose an
increasing threat to IPR integrity in the future.
Source: Polygon, ‘A pair of elaborate fakes convinced the internet this was the Nintendo NX controller’, March
2016, http://www.polygon.com/2016/3/25/11303690/nintendo-nx-controller-hoax. Last accessed 2 May 2017.
More changes to IPR crime business models are expected in the future.
The trade in counterfeit goods will continue to increasingly take place online. Equally, online
marketplaces will become even more popular with a wider group of customers. The range
of counterfeit goods sold online is expected to further broaden and diversify. In addition, the
use of social media for advertising counterfeit products is expected to continue in the future.
Online marketing will be even better directed at the ever-increasing number of internet and
particularly, social media users.
Many of the counterfeit goods that are sold online will continue to be distributed in parcels
via postal services. Due to reinforced checks and monitoring of the express freight couriers,
counterfeiters may make increased use of postal freight. Targeting and controlling suspicious
shipments in postal freight are a great challenge however, as not only are there implications
for law enforcement resources, but also, unlike freight, express couriers and postal services are
not managed by an integrated operator and include parcels from different companies.
The increasing digitalisation of the trading and transport system may bring new opportunities
for OCGs in future. The more widespread use of electronic bills of lading may be increasingly
exploited by criminals and lead to other risks such as hacking or e theft. Replacing paper-based
transport and customs procedures with electronic ones does not eliminate all kinds of possible
abuses by OCGs, even though, through the use of electronic risk analysis systems, customs are
in a better position to identify illicit cases.
In terms of new transport methods, trains may become more frequently used in future.
In January 2017, London became the 12th European city to be directly linked to China by freight
train and currently, there are 39 lines connecting Europe with 16 Chinese cities, all offering freight
services63. With cargo trains offering logistics solutions between China and the EU for nearly half
the price of air freight, which take approximately half the time of traditional container shipping,
the rail solution would appear to be a logical choice for many counterfeit consignments. Add to
this the number of EU destinations that are now directly served and the potential opportunity to
offload infringing goods en route, then the very low number of rail-borne seizures reported at the
external borders to date appears somewhat discordant. As rail freight services between the EU
and China become more numerous and efficient, and China develops its Belt and road transport
infrastructure, which are planned for the coming years, it is thought likely that increasing numbers
63 - Webb, J., The New Silk Road: China launches Beijing-London freight train route, Forbes.com, New York, 3 January 2017. Available
at: https://www.forbes.com/sites/jwebb/2017/01/03/the-new-silk-road-china-launches-beijing-london-freight-train-
route/2/#6d93fe447446.
of IPR-infringing consignments may arrive at the eastern EU external borders by train from where,
if they are not intercepted, they could then travel throughout Europe.
Fully automated self-storage facilities may also be exploited by criminal groups in future and
increasingly used for more anonymised trade, reducing the risks of detection.
Moreover, criminal groups will continue taking advantage of the Darknet. They will use it to
communicate and exchange information between members. Trade in counterfeit products
may increasingly take place on the Darknet. This can be partially explained by the increasing
oversight and control measures against IPR crime taken by intermediaries, such as online sales
platforms and social media on the open internet.
Document fraud and money laundering will continue to facilitate illicit trade in counterfeit products.
Criminal groups will make regular use of fraudulent documents at different stages of their activity,
particularly during transportation, distribution, infiltration of the legitimate supply chain and retail.
Money laundering will be consistently used to introduce the proceeds of crime into the legitimate
economy. Profits will be increasingly obtained via online trade and as a result, more technologically
advanced methods of money laundering are expected to be used in the future. In order to react to
these changes, the ‘follow the money approach’ will need to be implemented increasingly in order
to identify and disrupt the money trail of commercial-scale IPR-infringing activities. This will require
closer cooperation and information exchange, including on suspicious transactions potentially
linked to IPR crime, between law enforcement and private companies, and banks.
Adequate legislative measures will continue to play a crucial role in the fight against IPR crime.
The 2016 European Union trade mark regulation brought significant changes to the protection
of trade marks in the EU. In particular, the right to prevent the entry of goods infringing European
Union trade marks that are in transit and are destined for third countries could have a positive
impact on the seizures of counterfeit products in the EU. The legal situation at the national
level, and especially whether IPR crime is handled in administrative or criminal proceedings, is
expected to have an impact on the effectiveness of the fight against such activity.
In parallel, criminal groups will continue to exploit all possible legal loopholes in order to carry
out or expand their illicit activities. They stay informed of legislative developments and adapt
quickly to changes in the environment. Any future change in legislation or trade agreements
may have an impact on the dynamics of this crime area.
With the increased involvement of technology, IPR crime is expected to become more complex
and diversified. Therefore, in order to tackle the new challenges, a stronger partnership
between private and public partners is necessary. The role of intermediaries, such as postal
and packet services, online sales platforms, the advertising industry, payment service providers,
transport companies and shippers, will be instrumental in combating IPR crime. Better
information exchange between law enforcement and some of the private industries, such as
express couriers, money transfer services or payment service providers, will contribute to a
more effective fight against IPR infringements.
IPR-intensive industries proved resilient during the economic crisis, which demonstrates the
economic value and importance of these sectors and the key role that IPR protection plays in the
EU.
This type of illegal activity is increasingly attractive for criminal enterprises, and counterfeiting and
allied IPR infringements are now considered ‘global industries’.
IPR crime impacts on businesses, reducing financial resources that can be reinvested in research
and thus threatening future growth.
IPR infringing food and beverages pose a specific risk to health, as do toys. Counterfeit components
are also a concern, as there are serious safety implications.
Labels and packaging are being imported increasingly, which allows the subsequent EU internal
production of counterfeits.
Seizures at the EU external borders are estimated to be only a small part of the total amount of
imported counterfeited goods, and enforcement against larger IPR-infringing shipments continues
to be of great importance.
China remains by far the main country of provenance for counterfeit products. Hong Kong’s
shipping terminals and airport are transit points for goods manufactured in China.
Turkey is another important hub for counterfeits, which enter the EU through large truck
consignments.
Thailand and Singapore were the provenance of large numbers of small-scale consignments,
potentially indicating the presence of e shops in these territories or of distributors.
Organised criminal groups are infringing IPR heavily in the EU, organising importation, transportation,
storage and distribution. Some are also manufacturers.
These groups linked to IPR crime are typically poly-criminal, and are also involved in other criminal
activities, often related to the distribution of illegal commodities such as illicit drugs as well as
document fraud and corruption. Money laundering is often an indispensable element of their
business model, along with corruption and document fraud, which greatly facilitate criminal
activities in this area.
Online marketplaces have increasingly become key distribution channels for counterfeit goods.
Products sold online are subsequently distributed via parcel and postal services. The digitalisation
of the trading and transport systems will continue to affect the IPR crime landscape. Criminals will
take advantage of methods to anonymise their activity, from self-storage facilities, to the Darknet.
Piracy is an activity that will have to be monitored closely in the future. The unauthorised online
dissemination of protected content is a major concern. The illegal use of television broadcasts also
poses a challenge. Fraud in this field is often also connected to acts of digital piracy.
The growing use of cargo train transport between China and the EU is a concern and there are
many reasons why IPR infringers could exploit trains as a means of conveyance.
Technologically, IPR crime is expected to become more complex and diversified. In order to tackle
it more effectively, cooperation between all stakeholders should be a focus.
A global focus on other areas of criminality and terrorism has resulted in a drop in IPR crime as an
enforcement priority. Nevertheless, IPR crime continues to be one of the most lucrative criminal
enterprises, and this report has shown how it is frequently closely linked to other serious crimes.
Any efficient response to IP crime requires total cooperation between all stakeholders.
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Although DG TAXUD uses its own product sector coding system to categorise seized items,
the alternative HS is used by many other bodies to classify goods by type and allows for
measurements of legitimate trade in a given product sector to be established. The two systems
do not overlap exactly however, but categorising DG TAXUD seizures by HS codes is possible in
certain cases, and analysts at the Observatory have identified sufficient parallels to facilitate a
breakdown of import routes into the EU for a number of key product types.
The Eurostat international trade statistics dataset (Comext) was used to measure the proportion
of overall EU imports of a given product type by MS in 2013, by value. The DG TAXUD data was
then used to measure the proportion of IPR-infringing seizures that took place in each MS
for the same product type between 2011 and 2013, again by value. These two statistics were
then overlaid, in order to establish if there were significant geographical incongruities either in
terms of MS that reported a very high seizure ratio compared with the proportion of legitimate
imports of the same product type by value or, conversely, a significantly lower proportion of the
overall seizures that legitimate import shares may indicate probable.
Ultimately, five broad product sectors were investigated and patterns differed, according to
which type of commodity was scrutinised, and to which MS the analysis was applied. Malta, for
instance, was found to frequently record seizure values far higher than the country’s legitimate
trade statistics would indicate probable. This is because with a low population ratio, Malta does
not import a high overall proportion of any product type in the legitimate market but, as an
important maritime transport hub, the MS frequently records a high percentage of overall IPR-
infringing seizures by value, because customs focus on container traffic and therefore, much
higher volumes of products than those MS that focus more on small packages.
The legitimate cosmetics industry in Europe loses approximately EUR 4.7 billion of direct
revenue annually due to counterfeit products, which corresponds to 7.8 % of the sector’s
overall sales. If we add the knock-on effects on other industries, counterfeiting in this sector
causes approximately EUR 9.5 billion of lost sales and 80 000 job losses. Government revenue
losses are estimated at EUR 1.7 billion each year64.
64 - OHIM, The economic cost of IPR infringement in the cosmetics and personal care sector: report of a pilot study, OHIM, Alicante, 2015, p.
7. Available at: https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/observatory/resources/research-and-
studies/quantification-of-infringement-cosmetics_en.pdf.
65 - Comext is Eurostat’s reference database for detailed statistics on international trade in goods.
66 - The Czech Republic, Denmark, Estonia, Ireland, France, Croatia, Italy, Cyprus, Lithuania, the Netherlands, Austria, Poland, Portugal,
Slovakia, Sweden, and the United Kingdom.
67 - OHIM, The economic cost of IPR infringement in the clothing footwear and accessories sector, OHIM, Alicante, 2015, p. 7. Available
at: https://euipo.europa.eu/tunnel-web/secure/webdav/guest/document_library/observatory/resources/research-and-studies/
ip_infringement/study2/the_economic_cost_of_IPR_infringement_in_the_clothing_footwear_and_accessories_sector_en.pdf.
68 - Bulgaria, the Czech Republic, Estonia, Greece, Croatia, Italy, Cyprus, Latvia, Lithuania, Hungary, Malta, Portugal, Romania, Slovenia,
Slovakia and Finland.
Despite importing only 0.03 % of genuine items, Malta seized 18 % of the IPR-infringing footwear
recovered at the external borders from 2011 to 2013, followed by the United Kingdom (13 %),
the Czech Republic and Spain, which both recovered 12 % of IPR-infringing shoes and boots.
Taking the proportion of genuine footwear that each MS imported in 2013, and overlaying the
proportion of seizures that each MS reported for the 2011-2013 period gives the results seen
in Map 6. The MS that can be seen in red in Map 6, and the only one (beyond Malta) to record
seizures higher than ten times the proportion of legitimate imports is Latvia, which accounted
for 0.04 % of the genuine import figure and 0.6 % of the IPR-infringing figure.
What will also be noted from Map 6 is that Latvia’s immediate neighbour, Estonia, recorded an
incongruously low legal/illegal import ratio. The country recorded the third lowest proportion
of legitimate imports (after Malta and Luxembourg) and the lowest share of seizures (0.01 %).
Whilst this could be an indication that externally manufactured footwear is not a popular
product in Estonia, the presence of Latvia in the vicinity and that country’s ranking in Map
6 could suggest that counterfeit products enter the region via Latvia and are potentially
subsequently distributed in the Baltic States.
Research reveals that 14 MS69 recorded seizures of IPR-infringing footwear that were higher
in proportion than their share of legitimate trade. Therefore, as with the other relevant maps,
there appear to be a number of MS (14 in this case) where the proportion of counterfeit seizures
of a given product would be expected to be higher, given the country’s share of legitimate EU
imports. These can be seen in Map 6 in blue/lilac.
It is estimated that legitimate jewellery and watches industry losses are approximately EUR 1.9
billion annually due to the presence of counterfeits in the EU marketplace, corresponding to
13.5 % of the sector’s sales. Counterfeiting causes losses of approximately 15 000 jobs directly and
when knock-on effects on other industries are included, approximately EUR 3.5 billion of lost sales
to the EU economy and employment losses of about 28 500 jobs. Furthermore, counterfeiting in
this sector results in the annual loss of EUR 600 million in government revenues70.
69 - Bulgaria, the Czech Republic, Ireland, Greece, Spain, Cyprus, Latvia, Hungary, Malta, the Netherlands, Portugal, Romania, Slovenia
and Finland.
70 - OHIM, The economic cost of IPR infringement in jewellery and watches, OHIM, Alicante, 2015, p. 7. Available at: https://euipo.europa.
eu/tunnel-web/secure/webdav/guest/document_library/observatory/resources/research-and-studies/ip_infringement/study5/
jewellery_and_watches_en.pdf.
71 - Belgium, Denmark, Germany, Estonia, Croatia, Italy, Lithuania, Malta, Austria, Sweden and the United Kingdom.
73 - OHIM, The economic cost of IPR infringement in sports goods, OHIM, Alicante, 2015, p. 7. Available at: https://euipo.europa.eu/tunnel-web/
secure/webdav/guest/document_library/observatory/resources/research-and-studies/ip_infringement/study3/sports_reports_en.pdf.
74 - OHIM, The economic cost of IPR infringement in toys and games, OHIM, Alicante, 2015, p. 7. Available at: https://euipo.europa.eu/tunnel-
web/secure/webdav/guest/document_library/observatory/resources/research-and-studies/ip_infringement/study4/toys_games_en.pdf.
Pharmaceutical sector
75 - The Czech Republic, Denmark, Germany, Estonia, Ireland, France, Croatia, Italy, the Netherlands, Austria, Slovakia, Sweden and the
United Kingdom.
76 - EUIPO, The economic cost of IPR infringement in the pharmaceutical industry, EUIPO, Alicante, 2016, p. 5. Available at: https://euipo.
europa.eu/tunnel-web/secure/webdav/guest/document_library/observatory/resources/research-and-studies/ip_infringement/
study9/pharmaceutical_sector_en.pdf.
In 2013, EUR 49.6 worth of pharmaceuticals was imported into the EU, with the major importing
MS being Belgium (22 %), Germany (16 %) and the Netherlands (13 %).
Map 13 shows that Germany also reported a relatively high proportion of the overall IPR-
infringing recoveries (20 %), but that it was UK customs that stopped the highest percentage
(24 %), despite taking only 11 % of legitimate trade.
As with cosmetics, Bulgaria reported seizures in far higher proportions than legitimate import
figures might predict. In fact, 0.2 % of genuine pharmaceuticals were imported through Bulgaria
in 2013, but the MS reported recoveries of 20 % of the overall seizures by value, indicating that
it may be a hotspot as an attempted point of entry to the EU for this type of product.
Map 14 shows the remaining EU MS by the proportion of counterfeits they recovered compared
with the proportion of their share of total imports into the EU and, once more, it is the MS
shown in dark blue that recorded a lower ratio of IPR-infringing seizures to legitimate imports.
Ireland took 3 % of overall imports but recorded 0.005 % of the seizure total, Romania was
the point of entry for 0.92 % of all 2013 EU imports, compared to registering 0.009 % of the
overall IPR-infringing seizure total and Spain showed 6 % of recorded pharmaceutical imports,
as against recording 0.19 % of the external border seizure total.
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